AUD likely stable in 2016 on turn in commodity cycle and economy improvement

A broad stability in AUD is expected in 2016 with the turn in commodity cycle and improvement in Australian economy. It has declined sharply this year, with falling iron ore prices. AUS/USD seems to have found good support at 0.70.

Over last 3 months, a noticeable improvement in the AUD sentiment is seen. The country's economy also expanded by 0.96% in Q3, despite of the overhang from mining investment, lifting the annual growth rate to 2.5%.

"Near term, however, there is a risk of the AUD coming under renewed downward pressure given recent commodity price falls and a likely US policy tightening", says Lloyds bank in a research note.

The growth was supported by a rise in exports and solid company profits. Australia's  manufacturing PMI, along with recent forward-looking indicators, point to a continued improvement in next year.

"Nevertheless, a move back towards the RBA's desired level of around 0.75 should be in prospect by mid-2016. The RBA is likely to resist any appreciation in AUD/USD much above 0.75-0.80 until recovery is more established", added Lloyds Bank.